Monday, October 15, 2012

Failure to indicate non-US country of origin is literally false

Darling sells all-weather paper, Rite in the Rain (RITR)
paper, and holds a patent on it.Darling
produced STORM SAF all-weather paper notebooks for Brigade.Darling put the STORM SAF label on the
notebook covers, with RITR paper inside, and printed the patent marking on the
back of the notebook cover, although its patent covered sheets of paper rather
than notebooks.Brigade then sold the
notebooks to the quasi-government entity that runs retail outlets on military
bases.Brigade’s financial difficulties
led the relationship to break down.Green bought Brigade and switched paper suppliers, procuring waterproof
paper from China.Green didn’t put “made
in China” labels on its notebooks for at least a year, when a Customs agent
ordered the labeling.

The parties sued each other for, among other things, false
patent marking, defamation (these two brought by Green), false advertising/unfair competition, and trademark infringement in the STORM SAF mark (both).Defamation: Darling sent emails to military
personnel claiming that another firm had “done their best to create products
that are confusingly similar to ours” and that “lives could depend on the tactical
notes that they couldn’t record or turned illegible into mush.”Another statement claimed that Green’s
product “has such substandardqualities,
that it can be considered dysfunctional,” and that “failure to secure such
notes can lead to compromising a mission.”A sales script said that “offering this knockoff product to the troops
can potentially compromise a mission and virtually put lives at risk.”(There were, however, questions about Darling’s
responsibility for some statements, since they came from an intermediary.)Darling’s co-president stated that “(o)ur
feedback from soldiers, officers and our own testing is that the Chinese
product significantly underperforms and will result in-situ field failure and that
Green’s paper “begins to degrade” after a few minutes after soaking in
water.Darling’s internal tests
concluded that Green’s paper wasn’t weatherproof or waterproof, while Green’s
independent lab found that the writing on all tests was legible and no tearing
was noted whenexposed to water.Meanwhile, the military retailer’s tests
found Darling’s paper “acceptable” and Green’s Chinese paper “swollen, frayed,
and appeared fragile to the touch.”Eventually,
it switched to Darling’s notebooks.

The parties disputed whether it was false to mark the
notebooks rather than each individual sheet and whether, if that was false,
Darling had the requisite intent.Green
argued that Darling knew of the falsity because Darling had been denied a
patent on books and notebooks containing weatherproof sheets, but Darling
claimed that it used business judgment and legal advice to decide to mark the
notebooks.The new AIA “competitive
injury” standard is as yet undefined by the Federal Circuit, but the court
adopted a causation standard: a plaintiff must show that the false marking
caused lost sales, lost reputation, or inability to freely market or price
products.Green couldn’t satisfy that
standard.However, the Lanham Act claim
based on the same facts survived because there was a fact question on literal
falsity, as well as on Darling’s knowledge and Green’s likely injury.So, basically, it’s impossible to bring a
false marking claim any more, but you can still try your hand at a Lanham Act
claim on the same facts.

There were also factual issues on the disparagement claim,
even though Darling didn’t contest falsity for these purposes.Among other questions, loss causation was unclear,
given that the retailer’s own internal testing of Green’s products had bad
results.Likewise, Darling’s false advertising claims raised their
own questions of fact, such as whether Green falsely marketed its products as
waterproof; the court noted that literal falsity would also allow presumptions
of causation and damages. And there were fact issues on ownership of the unregistered trademark.

Country of origin claims: Green argued that any “mistaken”
marking (the notebooks apparently bore Green’s corporate address, in the US)
was moot because it had been fixed.There was a fact issue about when and how many notebooks were correctly
marked, but no dispute that Green didn’t put the proper country of origin on
the notebooks when they were first distributed.This was a “literally false omission,” meaning that causation and
damages would be presumed unless rebutted, and Green didn’t do so. An interesting result, especially since the court didn't cite the other country of origin cases. See, e.g., Alto Prods. Corp. v. Tri Component Prods. Corp., 1994 WL 689418
(S.D.N.Y. Dec. 8, 1994).The court granted summary judgment on
liability only for Darling.Because
Washington’s consumer protection law had no presumptions on causation or
damages (someday, someone should really catalog “state laws are just like the
Lanham Act except when they aren’t”), summary judgment for Darling on the state
law claim was inappropriate.

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